Live Mesh should not be deleting any files except in response to a deletion on another device in the Mesh - thereby keeping the folders in sync.
We've seen this happen if the folder is also being synchronized with another product. If two programs are trying to keep the same folder in sync using differnt methodology, the conflicts can cause the behavior you are seeing. If this isn't the case and files are indeed randomly being deleted, please file a bug report with logs from all of the machines in your Mesh:
How to Submit Bugs and Live Mesh Logs
Note that you probably won't get a response to the bug report, though. It will be transferred to the internal system to be assigned to the appropriate development group.
-steve
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